Share-based Benefit Plans

Share-based Plans. The Company has a share-based compensation program that provides its Board of Directors with broad discretion in creating equity incentives for employees, officers, non-employee board members and non-employee service providers. This program includes incentive and non-statutory stock option awards, stock appreciation rights (“SARs”), RSUs, performance-based cash bonus awards for Section 16 executive officers and an automatic grant program for non-employee board members pursuant to which such individuals will receive option grants or other stock awards at designated intervals over their period of board service. These awards are granted under various programs, all of which are stockholder approved. Stock option awards generally vest as follows: 25% of the shares vest on the first anniversary of the vesting commencement date and the remaining 75% vest proportionately each quarter over the next 12 quarters of continued service. RSUs generally vest in equal annual installments over a four-year period. Initial grants to non-employee board members under the automatic grant program vest in equal annual installments over a four-year period and subsequent grants to non-employee board members generally vest over a one-year period in accordance with the specific vesting provisions set forth in that program. Additionally, the Company has an Employee Stock Purchase Plan (“ESPP”) that allows employees to purchase shares of common stock at 85% of the fair market value at the subscription date or the date of purchase, whichever is lower.

Valuation Assumptions

Option Plan Shares. The fair value of the Company’s stock options granted, excluding unvested stock options assumed through acquisitions, was estimated using the following weighted-average assumptions:



	Three months ended		Six months ended
	June 29, 2014	June 30, 2013	June 29, 2014	June 30, 2013
Dividend yield	1.20% - 1.25%	—%	1.20% - 1.44%	—%
Expected volatility	0.31	0.32	0.32	0.38
Risk-free interest rate	1.19%	0.72%	1.22%	0.68%
Expected term	4.2 years	4.3 years	4.4 years	4.4 years
Estimated annual forfeiture rate	8.79%	8.51%	8.79%	8.51%
Weighted-average fair value at grant date	$24.07	$16.22	$18.83	$16.44

RSU Plan Shares. The fair value of the Company’s RSU awards granted was valued using the closing price of the Company’s stock price on the date of grant.

Employee Stock Purchase Plan Shares. The fair value of shares issued under the Company’s ESPP program was estimated using the following weighted-average assumptions:



	Three months ended		Six months ended
	June 29, 2014	June 30, 2013	June 29, 2014	June 30, 2013
Dividend yield	1.25%	—%	1.25%	—%
Expected volatility	0.31	0.33	0.31	0.33
Risk-free interest rate	0.08%	0.13%	0.08%	0.13%
Expected term	½ year	½ year	½ year	½ year
Weighted-average fair value at purchase date	$17.25	$12.54	$17.25	$12.54

Share-based Compensation Plan Activities

Stock Options and SARs. A summary of stock option and SARs activities under all of the Company’s share-based compensation plans as of June 29, 2014 and changes during the six months ended June 29, 2014 are presented below (in thousands, except for weighted-average exercise price and remaining contractual term):



	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Options and SARs outstanding at December 29, 2013	6,593		$	40.66	4.2	$	195,018
Granted	990		75.91
Exercised	(2,392	)	37.90			40,580
Forfeited	(104	)	48.28
Expired	(5	)	37.68
Options and SARs outstanding at June 29, 2014	5,082		48.67		4.6	274,748
Options and SARs vested and expected to vest after June 29, 2014, net of forfeitures	4,746		47.85		4.5	260,544
Options and SARs exercisable at June 29, 2014	1,849		35.62		3.2	124,068

At June 29, 2014, the total unrecognized compensation cost related to stock options, net of estimated forfeitures, was approximately $47.5 million, and this amount is expected to be recognized over a weighted-average period of approximately 2.4 years. As of June 29, 2014, the Company had fully expensed all of its SARs awards.

Restricted Stock Units. RSUs are settled in shares of the Company’s common stock upon vesting on a one-for-one basis. Typically, vesting of RSUs is subject to the employee’s continuing service to the Company. The cost of these awards is determined using the fair value of the Company’s common stock on the date of grant, and compensation is recognized on a straight-line basis over the requisite vesting period.

A summary of the changes in RSUs outstanding under the Company’s share-based compensation plans during the six months ended June 29, 2014 is presented below (in thousands, except for weighted-average grant date fair value):



	Shares		Weighted-Average Grant Date Fair Value		Aggregate Intrinsic Value
Non-vested share units at December 29, 2013	4,454		$	49.87	$	221,457
Granted	2,168		76.29
Vested	(1,259	)	46.13		97,486
Forfeited	(182	)	54.87
Non-vested share units at June 29, 2014	5,181		61.65		319,390

At June 29, 2014, the total unrecognized compensation cost related to RSUs, net of estimated forfeitures, was approximately $234.1 million, and this amount is expected to be recognized over a weighted-average period of approximately 2.9 years.

Employee Stock Purchase Plan. At June 29, 2014, the total unrecognized compensation cost related to ESPP was approximately $1.6 million, and this amount is expected to be recognized over a period of one month.

Share-based Compensation Expense. The following tables set forth the detailed allocation of the share-based compensation expense (in thousands):



	Three months ended						Six months ended
	June 29, 2014			June 30, 2013			June 29, 2014			June 30, 2013
Share-based compensation expense by caption:
Cost of revenue	$	3,507		$	2,447		$	6,117		$	4,164
Research and development	17,500			12,704			33,175			24,344
Sales and marketing	7,204			4,701			13,461			8,572
General and administrative	6,238			4,809			11,726			9,315
Total share-based compensation expense	34,449			24,661			64,479			46,395
Total tax benefit recognized	(9,033		)	(6,222		)	(17,809		)	(13,138		)
Decrease in net income	$	25,416		$	18,439		$	46,670		$	33,257

Share-based compensation expense by type of award:
Stock options and SARs	$	7,971		$	8,054		$	15,895		$	16,323
RSUs	23,990			14,788			43,455			26,758
ESPP	2,488			1,819			5,129			3,314
Total share-based compensation expense	34,449			24,661			64,479			46,395
Total tax benefit recognized	(9,033		)	(6,222		)	(17,809		)	(13,138		)
Decrease in net income	$	25,416		$	18,439		$	46,670		$	33,257

Share-based compensation expense of $7.3 million and $2.7 million related to manufacturing personnel was capitalized into inventory as of June 29, 2014 and December 29, 2013, respectively.

The total grant date fair value of options and RSUs vested during the three and six months ended June 29, 2014 and June 30, 2013 was as follows (in thousands):



	Three months ended				Six months ended
	June 29, 2014		June 30, 2013		June 29, 2014		June 30, 2013
Options	$	7,615	$	7,282	$	17,843	$	21,850
RSUs	8,225		6,082		58,090		35,903
Total grant date fair value of vested options and RSUs	$	15,840	$	13,364	$	75,933	$	57,753